Money

My partner, Jamil, wrote this piece about the problems with housing being an investment rather than shelter. He said he wanted to start a conversation, so here’s my contribution.

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I was recently having a conversation with my parents and brother about the fact that the financial services industry is not set up to serve most of us. It’s something I’ve been thinking about for many years. I used to be a manager at a Borders Books & Music. One of my part time employees was a financial planner in his day job. He was a nice guy, but the one conversation we had that really stuck with me was annoying. He found out that I rented rather than owned a house. Then he started explaining to me all the ways that that was wrong. I was basically throwing money away. I wasn’t building equity. All that kind of stuff. I tried to explain to him that Borders didn’t pay their managers much money and that I wasn’t interested in an investment, but rather a place to live. He said I was wrong and explained about starter homes. I realized we weren’t even speaking the same language and made an excuse to get out of the conversation.

As I’ve thought about that conversation, I’ve realized that the thing we were really disagreeing about is the role of money. For most of us, money is a means to get things like food, water and shelter, and if there’s any leftover, perhaps some entertainment. But for the people who have a lot of money, a good chunk of their money is used to make more money. This becomes a problem where these two groups of people intersect.

One of the areas where they intersect is housing. One group sees housing as a basic necessity while the other group sees it as an investment. The housing market makes more money off of those that consider it an investment, so that is where they focus their attention. Then this prices all of us who are just looking for shelter out of the market.

Another area is the credit markets. One group sees credit as a lifeline. They get sick, can’t afford the doctor bills, so they borrow the money. They need a car to get to work, but that work doesn’t pay enough for a car, so they borrow money. They have a plumbing problem, but don’t have the cash to fix it, so they borrow money. The other group sees credit as an investment, a way to improve their situation. If they borrow money to buy this land, in a few years they can sell the land for a profit and pay off the money they borrowed. If they borrow money to expand a business, they will get more customers, make more money and pay off the money they borrowed. If they borrow money to improve their homes, it increases the value of their homes so they can make a bigger profit when they sell their homes. Again, the credit markets make more money from the wealthy borrowers, so everything is set up for them, making credit harder to get and more expensive for the rest of us.

You can see the same types of patterns in banking, life insurance and retirement. The two groups have different needs and reasons for using those services. But the wealthy are more profitable, so those services become set up for the wealthy, leaving the rest of us out. I’m not sure what the answer is. Perhaps we need two separate financial services markets. One can serve people looking to use their money as an investment and the other can serve people looking to use their money to live. I just know that the current set up has failed a huge number of people.